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Selling on a property with a protected tenant – what are the rules?

AgreementHere is a question to the blog clinic from Colin who is a landlord:

Some time ago, I bought the Headlease of a block of flats at an auction that included a Protected Tenancy.

Recently, I have been inundated with offers from Property companies seeking to buy this tenancy from me. I guess this is because it is in Camden where house prices are rising significantly.

My questions:

1. Is there any kind of accepted formula for working out the going rate for selling such a property?

2. I have heard that legally I would have to offer the flat to the sitting tenant at the agreed rate prior to accepting the offer of a property company. Is this correct?

I am not really the best person to answer this as I have never really done much conveyancing work (other than when I was an articled clerk), so I am hoping that readers will be able to help me out.  But here are my comments:

1. I am not aware of any formula and I think it is really a question of negotiation and seeing what they will accept.

Bear in mind that the tenant is fully entitled to refuse.  Some tenants may just prefer to stay where they are.  After all, they are never going to get another protected tenancy.

2. There is something in the back of my mind which rings a bell here, but I have just had a look at the act again and can’t see anything about it.

My understanding is that you don’t have to offer it to the tenant first.  But I could be wrong.  What does anyone else think?

About the author

Tessa Shepperson Tessa is a lawyer specialising in residential landlord and tenant law. She runs the Landlord Law website (now in its 12th year) and is also a director of Easy Law Training Ltd and Your Law Store. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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7 Responses to Selling on a property with a protected tenant – what are the rules?

  1. Giles Peaker says:

    It isn’t clear if you are looking at selling the head lease as a whole or just the flat with the protected tenant. But either way, there being a sitting protected tenant will affect the value.

    So long as the tenant is not in breach of the tenancy agreement or statutory requirements in some way, their tenancy can’t be ended simply because you want to sell. But the tenant does not have the right of first refusal on the flat either. (If there are sub leaseholders of other flats, they may well have such a right on sale of the head lease.)

    It sounds likely that the only way to get vacant possession of the flat would be to buy out the tenant. This is not statutory, and the tenant can simply refuse. A rule of thumb is that a buy out offer should be about half the difference between the value of the flat with a sitting protected tenant and the value with vacant possession. This can be a significant amount. But there is nothing binding in this. The tenant can demand more, or just refuse.

  2. Jamie says:

    We buy properties with assured tenants in situ. They are similar to protected tenancies with the significant diffence that assured tenancy rents can usually be increased to the market rate whereas regulated tenancies cannot.

    For this reason the value of a property with a protected tenancy will usually be a bit lower than if it were an assured tenancy. 50% of the vacant possession value is not uncommon.

    There is no accepted formula for the valuation like one might have for a lease extension for example. One of the biggest factors in the valuation is the age of the tenant and whether anyone else lives with them who might have succession rights to the tenancy. You will need a good valuer who has experience of these situations.

    It is nearly always more financialy beneficial to buy the tenant out and sell with vacant possession, if you can afford it and the tenant agrees to it.

    Much like other residential tenancies, a protected tenant has no right of first refusal.

  3. Please note, unlike Assured tenancies, a protected tenant can have a right of first refusal. See section 3 of the Landlord and Tenant Act 1987 “…a person is a qualifying tenant of a flat if he is the tenant of the flat under a tenancy other than”…..it then goes on to list types of tenancy but a rent act protected tenancy is not in the list.

  4. Jamie says:

    Yes, but the right only applies where the superior landlord is selling their freehold/ground rent interest. In this particular case he is only selling on a lease so it does not apply.

  5. Jamie says:

    At least that was always my understanding, although my expertise is not protected tenancies.

  6. Jamie says:

    Digging around on the leasehold advisory website they seem to agree with my understanding and that he can sell the individual lease of that flat without the right of first refusal being applicable as he is not selling the freehold. They specifically say that
    “the disposal must apply to the whole building.”

  7. Yes, that rather fits in with my impression too.

    Mostly landlords can sell as they like but there are special circumstances where protected tenants do get a right of first refusal. So it looks as if the special circumstances are selling the freehold.




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